Many hospitals are stretched beyond capacity by the COVID-19 pandemic and on top of a scarcity of beds and equipment, will face financial volatility that could upend systems running on relatively thin profit margins.
Two of the biggest for-profit systems, Tenet and Community Health Systems, pulled 2020 guidance amid the outbreak. Executives say loss of revenue from elective procedures postponed for at least a few months to free up supplies and staff for COVID-19 treatment coupled with rising expenses have pushed them to expect revised earnings projections.
Tenet also furloughed about 500 full-time employees not directly involved in patient care. Executives said that while its facilities were not yet overwhelmed, it could see significant financial implications ahead. "I really do think it's important that people realize that we are clearly feeling the pressure that the entire healthcare delivery system is feeling and facing," CEO Ron Rittenmeyer told investors last week.
Moody's and Fitch Ratings downgraded their outlooks for the nonprofit hospital sector, citing the pandemic and its volatility.
"The biggest thing that every organization is dealing with is a very sort of significant dislocation in their whole financial model," Eric Jordahl, capital markets practice leader at Kaufman Hall, told Healthcare Dive.
Hospitals received some help in the form of $100 billion of emergency relief fund in the Coronavirus Aid, Relief, and Economic Security Act, but industry leaders and analysts say that amount won't be nearly enough to keep up with the flagging revenues and other upheaval.
"While the $100 billion provides some compensation, it will likely be insufficient to fully cover this lost revenue, particularly if the outbreak is sustained over a long period, and elective and other nonessential care remains suspended into late spring or summer," Moody's wrote in a report published Tuesday.
Hospital groups and independent experts alike say they will need funds beyond the CARES Act to stay afloat. One estimate shows hospitals losing about $1,200 per COVID-19 case. But HHS has said some of that money will be used to pay for treatment of the uninsured, which could take up as much as 40% of the allocation, according to an estimate from the Kaiser Family Foundation.
But some health systems are in a better position than others to withstand the crisis, and multiple questions will factor into what the long-term picture for the industry will look like.
Balance sheets, diverse service lines
Experts agree that larger health systems will have the best chance of weathering the crisis financially. They have more resources to draw on and the ability to move them around as needed.
"Smaller community hospitals are going to have a harder time than the larger hospitals just because of economies of scale," Damaris Medina, co-chair of the life sciences practice at law firm Buchalter, told Healthcare Dive.
They also have more service lines that, at least before the outbreak, bring in revenue.
Geographic diversity could also be helpful as more hot spots emerge. A system focused in one market would have no where else to turn if that area becomes hard hit, she said.
Systems with a patient mix that includes more people with commercial coverage are also likely to be better off as those rates are higher than Medicare and Medicaid. But staggering job losses that have already started as the country's economy grinds to a halt will push more people to get Medicaid or go without coverage at all.
"Any sort of benefit that they have from that is probably going to be unfortunately cut by the fact that now they have a large volume of self-pays," Heather Kawamoto, vice president of patient access and financial experience at Waystar, told Healthcare Dive.
Jordahl said size is a factor but balance sheet strength is even more important. Organizations that have worked over time to build a buffer will be in a better position to weather the financial dislocation.
"There is a difference between how certain organizations enter into this set of challenges, and it really does have a lot to do with what financial resources are available," he said.
Brian Tanquilut, an analyst at Jefferies, told Healthcare Dive that HCA Healthcare had a relatively healthy balance sheet and ability to generate cash going into the pandemic that means it "should be able to weather the storm." HCA was also quick to make a credit agreement to free up the potential for term loans adding up to $2 billion on March 20.
Tenet and CHS are in similar buckets and will likely be OK if systems are able to ramp up procedures again in a few months, Tanquilut said. He will be looking at how quickly the companies can recapture the lost revenue from postponed elective surgeries, perhaps by continuing increased capacity for such services even as the outbreak subsides.
But if cases continue to mount for several months, that thinking becomes less reliable, he said.
Kevin Holloran, a senior director at Fitch Ratings, told Healthcare Dive that if hospitals are able to get closer to normal operations within a few months, most of them will manage.
"If you've got good strong credit and are comfortable with your rating going into this, you're probably going to be strong going out of this," he said. "We don't rate to one bad year, just like we don't rate to one good year."
Holloran said it's too early to say what specific systems might be most affected, but while some parts of the country have been severely affected, those large population centers also tend to have hospitals that have been performing well. In New York, for example, places like Mount Sinai Hospital and New York-Presbyterian have a good starting point.
"You start to look at those and say yes there's a lot of cases in New York, but those are some of the largest and strongest — where some of the best management teams are. You start to worry about them less," he said.
Many smaller and rural hospitals were already on the brink of closure before the pandemic hit, operating with some of the smallest margins. A quarter of the nation's rural hospitals are at risk of shutting their doors, according to a new analysis from consultancy Guidehouse that looked at a combination of total operating margin, cash on hand and other factors.
Safety net hospitals, however, might escape some of the financial hit from stopping electives because they mostly perform births and emergency surgeries that can't be delayed.
"As you look around the sector, community hospitals currently see less reliance on elective procedures, and the financial impact to them will be less than to a high-end tertiary/quaternary facility that serves a mix of patients skewed towards more surgical (elective) versus medical," Fitch noted in a recent report.
Big questions unanswered
Perhaps the biggest question is when the case numbers will start to slow, and therefore when some facilities can resume elective procedures and expect to see more outpatient visits. Many variables will affect this, including how well Americans adhere to social distancing guidelines and how long it will take for testing to become more widely available.
With so many unknowns, providers can't count on a date to plan to open back up, especially as different parts of the country see surges at different times and additional waves of outbreak are possible.
Another question top of mind for providers is when and how HHS will distribute the $100 billion allocated in the CARES act and what additional relief funding Congress might pass. Industry groups have said more money will be necessary to keep facilities operating and able to handle COVID-19 capacity.
"Clearly it's going to help on the liquidity front, but I think everyone is still scrambling a little to figure out how much help it is — and is that enough," Jordahl said.
Congressional leaders have said another funding package is likely, but details are scarce and negotiations could drag on for days, if not weeks.
Providers will be watching whether further action from Congress will include measures that could help people obtain health coverage and afford care, Medina said. "Any help that the government can provide to make sure that the safety net is still alive after this is done is going to be imperative," she said.
It's also still unknown how commercial payers may react as the pandemic continues. So far, most major insurers have said they will waive cost-sharing for COVID-19 testing and treatment, but as the financial hit becomes more clear, they may take action to limit their losses.
That could include delays in payments or more prior authorization requirements, Medina said. "With plans seeing the downturn in the economy, potentially profits going down, I have a concern that we're going to see an increase in denials and some negative activity from plans that may affect hospital revenue," she said.
Far more questions remain for the longer term, such as whether some regulations on areas like telehealth might be permanently relaxed.
Holloran said he wonders whether politicians and the public at large may eventually start to look at the U.S. healthcare system as a whole a bit differently. "Now that we can conceive of a pandemic and we know what that means, do we not say as a society, 'Wow, I did not realize how much I need and value a strong hospital in my community.'"